thank you for watching "state of the union." i'm candy crowley in washington. head to cnn.com/sotu for analysis and extras. if you missed any part of today's show, find us on itunes. just search "state of the union." fareed zakaria is next from here and parts of the united states. this is gps, the global public square. welcome to you around the states and the world, i'm fareed zakaria. we have a very important show. first up, with washington as an impasse, an exclusive conversation with unof america's greatest deal makers. james bake eric former secretary of state, former secretary of treasury, former white house chief of staff on how to stay off the fiscal cliff and on what his party should learn from the last election. next, when the u.s. aimed high in the 1960s, we sent a man to the moon. with a similar effort, we can

now cure cancer. that whees the head of the largest cancer center in the world, houston's m.d. anderson says. you want to hear why we're so close to success and yet so far. and merge has lost its numb were one standings in lots of areas from competitiveness to education. the new number one in most cases, a scandinavian country. what is the secret sauce? we'll dig into it. but first here's my take. as we debate whether the two parties can ever come together and get things done, here's something president obama could probably do by himself that would be a single accomplish money of the his presidency. end the war on tar rohr. for the first time since 9/11 an official has raised the prospect. johnson said in a speech to the oxford last week as the battle against al qaeda continues,

there will be come a tipping point at which so many of the leaders and operatives of al qaeda and its affiliates have been killed or captured such that as al qaeda as wi know it has been effectively destroyed. at that point, he says, our efforts should no longer be considered an armed conflict. you might not realize it, but we're still living in a state of war. this is the longest since the civil war, world war i, world war ii. it grants the president and federal government extraordinary authorities, effectively extends civil liberties for anyone the government deems an enemy and keeps us in a permanent war footing in all kinds of ways. end this situation should be something that would appeal to both left and right. james madison, the author of the constitution, was clear on this topic. of all the enemies to public enemy, he wrote war is the most draw might because it comprises

and develops the germ of in other. of all the enemies to public lynn earth war is perhaps the most directed because it compromise and develops the germ of err other. war is the parent of armies. in addition we have had the largest expansion of the federal government since world war ii. dana priest and will yaj arkin have documented that the u.s. government has built 33 new building complexes for the intelligence bureaucracies alone, occupying 17 million square feet, the equivalent of 22 u.s. capitals or three pentagons. the department of homeland security itself employs almost one quarter of a million people. of course, there are new branches out there. those terrorists should be captured or killed, but we have

done this before and we can do it again in the future under more normal legal circumstances. it will mean that the administration will have to be more careful and perhaps have more congressional involvement for certain actions like drone strikes. it might mean it will have to charge some of the people in guantanamo and try them in military or civilian courts. but is all this bad? so have we reached a point where we might consider shifting from emergency wartime powers? well, a new report is out this week, a new global terrorism index. it goes from 2002 to 2011. it shows that terrorism went up from '02 to '07 largely because of the conflicts in afghanistan, pakistan, and iraq, but has been declining ever since. and surveying the situation by region, the report finds that the part of the world with the fewest incidents of terrorism has been north america. for more on this, readmy columbia in "the washington post." there's a link to it on the web

side. cnn.com/fareed. let's get started. -- captions by vitac -- www.vitac.com he was centrally involved in historic bipartisan deals to reform our tax system, our immigration system, social security. james baker was ronald reagan's most important lieutenant. so who better to tell us how to get a deal done in washington today? i spoke with him at the baker center at rice university in houston. mr. secretary, pleasure to have you on. >> thank you so much. pleasure to be with you. >> so you've been chief of staff, secretary of treasury, you know this moment. the president is negotiating with congress over a budget. what would you do if you were to put yourself in the place that tim geithner is or john boehner is. how would you play this? >> well, i think it's very important that the -- that the

top levels of both parties are involved in the negotiation and that they get together as soon as possible because what we really need is grand bargain to deal with the state of our economy. we're fiscally bankrupt. if we didn't have the dollar, we might be greece. we have a deal with our debt bomb. giev tot face the fiscal cliff that's coming in a couple of weeks. >> so you know what both sides are saying. the president is saying there's no way to make the math work without raising the rates for the top income earners and that the republicans should give in on this. >> yeah, yeah. >> do you think he's right? >> well, i understand that position. that was the position he took during the campaign. but what has to happen in my view, you've got to have everything on the table. yo view to have revenue increases. now, how you get those revenue increases was an item of discussion during the campaign. it are be an item of discussion

during the negotiation. i for one think you could get there in way that would promote economic growth by eliminating -- by bronding the tax base, by eliminating loopholes and deductions. the truth of the matter, fareed, is we're not undertaxed as americans. we overspend. i think everybody would agree we overspend. that's why we have this debt to gdp over 100%. fars as the eye can see, absence poultcy changes. whatever you do, you first have to agree what the level of debt to gdp ought to be and there'll be a negotiation about it. one of the things that the republicans are going to need in this negotiation it seems to me is assurance that if they raise taxes and once they've raised taxes that they will, in fact, get the spending cuts because in past years they've agreed to tax

increases, and those spending cuts never come. >> did that happen to reagan? >> it happened in reagan's first term. we agreed do some spending cuts that we didn't get. it happened under george h.w. bush's presidency. so it's really important in order to engender our confidence and trust, particularly on the part of the republicans that they know if they agree to tax increases, which they're going to have to do, revenue increases, which they're going to have to do, that they have spending cuts. how do you get there? >> you get there by agreeing on what the spending to gdp should be, and say once it goes over that then you'll have across the board spending cuts. that produces votes. that's one way. the other way is if you raise

taxes as a part of a grand bargain, you could provide that those taxes would be rescinded automatically and would sunset in the event you exceeded that cap of spending to gdp, whatever it is, 20%, 21%, wherever it is, 22%. >> on the spending side, even if you were to do the kind of sequestration you were talking about, if you look at the median term, certainly the long term -- >> yeah. >> -- all of the increases in spending are essentially around health care. it's medicare and medicaid that are out of control. what would you do about that. >> well, you've got to fix it. you've got to -- you've got to have entitlements on the table because entitlements are the biggest part of our spending problem. defense has to be on the table. everything has to be on table. you have to begin this any dpoesh yags by agrees there are knoll going to be any preconditions.

even's going to be on the table. you have to also agree nothing will be decided until everything is decided. you also have to agree everything will be done in confidence and bhoofrd behind closed doors. it's extraordinarily difficult when you try to do it. it looks like the campaign is continuing. that's where we are today. we did social security totally plievt behind closed doors. >> so you think the way they're doing it is just wrong. >> i don't think they'll ever get this this way. they're jousting each other. each side is repeating its campaign talking points. you need to have a serious confidenti confidential, substantial negotiation by top levels of both parties. >> you are a political animal. looking at this, this situation, what is your gut? who's going to win? >> i don't know. who we ought to be talking about

is not who's going to win but how can the country win? look. in the short term, if we go over the cliff. it's conceivable that people will say, oh, well, that's the republican's fault and the president won. the fact of the matter is if we don't get this problem solved and it's going to take leadership by the top leader in the country, and that's the president of the united states. if we goedon't get it revolved, he's going to bare the burden. if the economy doesn't recover, people are going to hold the party responsible. >> we'll be right back. i'm going to ask him what his lesson from the last election is, what he took from it, and also some thoughts on foreign policy, when we come back. [ male announcer ] citi turns 200 this year.

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with odor free aspercreme. powerful medicine relieves pain fast, with no odor. so all you notice is relief. aspercreme. . we're back with james baker, former secretary of state, former secretary treasurer, former chief of staff, everything. you watched the last election. i know because we talked. you ran in two campaigns. what did you make of it? >> i thought the election was going to be closer than it ended up being. i thought looking at it from the outside that the republicans had a decent chance of winning. i think the two most important things that happen thad defeated that were the very divisive

primary we had to endure before with 22 debates and a period between the end of the primary season and the beginning of the general election where the democrats were able to paint governor romney as something that he really isn't in my view and the republicans' side of the screen were silent because they had to wait till they got their general election money. and then the ground game. i think the democratic campaign had a probably very far superior campaign to the ground campaign. there's something that this election campaign tells us that needs to be done for my party, for us as a party. i think it's really important that we be seen to be the party of hope, optimism, and opportunity. that's what ronald reagan taught

us, instead of gloom and doom. we need to be positive. we need to appeal to those voter groups that we had trouble with. we need to apeelt to all minority voters, in particularly hispanic and asian voters. we need to have a credible and comprehensive immigration plan that we can put forth out there. we need to talk about urban issues and fact the fact that we don't -- we didn't get the votes we needed from urban areas. we didn't get the votes and don't get the votes from women. there we need to focus on our economic conservatives rare than our associate conservatives because a lot of those issues cut against us in the general election. aoug we ought to also be seen as a strong national party of security, yes, but not the party of war. >> talk about that. what did you think of the primaries, even with governor romney and the china bashing or on iran.

where do you think the wents went down? >> i don't think they're wrong on iran. i happen to believe we can't let iran acquire a nuclear weapon. we can talk about that later. i don't think it was substantively right to talk about december igniting china as a currency man in later on the first day in office. that's not going to solve the problem. that's not going to cure our trade sef sit with china. we need to save more in this country and we deed to get a handle on this great big debt bomb that we've got out there if you want to soothe that problem. ronald reagan didn't get into any war. we had a police action in eight years. that was it. yeah, you've got to be strong, maintain a strong national defense, fight against budget cuts and so forth, but unless

there's a very large national interest involved sometimes it's very counterproductive to engage in these overseas events. that would be the worst thing in the world we could do in my opinion. we should support the syrian opposition politically, diplomatically, economically, but not militarily brks but that's a slippery slope once you get into it. >> not even no-fly zone? >> when you do that, you have to take out the anti-aircraft batteries at risk. his government is going to fall. i think the policy that the administration is following on syria is absolutely the right policy to follow and i think the american people are going to

demand more and more that there be a significant before we engage. >> let me ask you about last week's news about israel deciding that in response to it, they're going to build settlements which would essentially make a contiguous -- snienk that's extraordinarily regrettable and regrettable for israel because israel cannot continue to be both a democratic and a jewish state if it stays in occupation of all of those lands. the demographics are such that that can't happen. so they're risking their status as both a democratic and jewish state. what are they going to choose? are they going to choose to be a jewish state or a democratic state. in a two-state solution it would be really extraordinarily sad if settlement activity got so rampant and so extensive that it

closed the opportunity for a two-state solution. >> you're the last administration that really applied pressure on this issue. do you think the obama administration should be doing more to try to press israel? >> well, i think what the obama administration needs do if they -- you know, the middle east is in chaos right now, and israel's going to be affected by that. and it's going to be affected in my view adversely by that. so i think what the administration needs to do is before more hands on and try to promote arab/israeli peace. that involves a whole lot more things than just settlements, and i think it was a mistake, for instance, for president obama in the first term to make -- fight on settlements. evan everybody in the united

states don't want settlements but it was a mistake for him to go out and say no morriset morrisetteleme morrisettelement. as soon as it was push back, they caved. if you're going to take that position, you don't case. i think what's needed is a hands-on approach involved everything. not just settlements, but everything el. get the parties back to the table-talking east. it's an axiom. if there not peace talks going on. >> finally in iran do, you think obama's administration policy, which is pressure, sanctions, tightening the screws, ads well as forcing the cyber attacks, are they doing enough? would you do something differently? >> they're doingering i thing they can do, and i think the policy is absolutely the right

policy. they're doing things covertly as well as you know. the samgss are beginning to show some evidence of biting. at the end of the day if none of that works, if they start enriching beyond 20%, if they kick out iran and the inspectors and go back to the program they suspended back whenever it was, 2006, if any of those things happen, then i think we just have to do what we have to do because we cannot let iran have a nuclear weapon not because of the threat so much to israel or the united states or the montana arab allies but because of the prolive nation. we've gottet the capability f of financially acquiring it. we can't have it happen.

>> james baker, pleasure to have you on, sir. >> thank you. >> that was james baker, the former secretary of state, former secretary of trashry. up next "what in if the world. scandinavia always comes out on top. why? and what can we learn from them? searching for a bank designed for investors like you? tdd#: 1-800-345-2550 schwab bank was built with all the value and convenience tdd#: 1-800-345-2550 investors want. tdd#: 1-800-345-2550 like no atm fees, worldwide. tdd#: 1-800-345-2550 and no nuisance fees. tdd#: 1-800-345-2550 plus deposit checks with mobile deposit. tdd#: 1-800-345-2550 and manage your cash and investments tdd#: 1-800-345-2550 with schwab's mobile app. tdd#: 1-800-345-2550 no wonder schwab bank has grown to over 70 billion in assets. tdd#: 1-800-345-2550 so if you're looking for a bank that's in your corner, tdd#: 1-800-345-2550 not just on the corner... tdd#: 1-800-345-2550 call, click or visit to start banking with schwab bank today. tdd#: 1-800-345-2550 yeah we both relieve coughs, sneezing, aches, fevers. and i relieve nasal congestion.

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now for our "what in the world" segment. the u state has fall behind in a number of global rangings. for example the economists have just published what it calls the "where to be born" index that provides the best opportunities and high evidence quality of life. in 1988 america was number one. now it's a joint 16th. three of the top five countries today are in scandal navy ya.

norway, sweden, and denmark. look at the oold world economic forums competitive global index. the united states has fallen to seven in the latest rangings. finland and sweden are in the top five. look at corruption. the united states ranks 19th in the international transspirnlts index. denmark and finland are the cleanest. you can look at two things. america is losing its edge. each of these countries seem to dominate global rankingsly. why? what is their secret sauce? well, scandinavia is much more free market oriented than people realize. capital is allocated by the market. the government doesn't own companies. regulation is usually light. corruption is nonexistent. companies can hire and fire easily. labor moves around. but these countries do tax a lot

and spend a lot on education, child care, health, and other things. now, a recent m.i.t. paper suggests there are limits to this model. it's called "can't we all be more like scandinavians." we've livglinked in paper. in brief it shows how they provide more benefits, a number of vacations, more health care and equality. but when it comes to in ovation, the u.s. still wins. the patents filed by u.s. residents the u.s. has moved far ahead of scandinavian countries. here's why it's important. unlike say a health care system which only benefits people of one particular company, innovation has global impacts. new american inventions spread around the world. according to the paper's authors, scandinavian countries free ride on u.s. research and development, but if the u.s. became scandinavian, it would

spend less on innovation, which might reduce global growth rates and thus discredit the scandinavian model. the paper has been criticized for using patents as a marker for innovation, but even sew this is an important discussion, and it ties into many of the questions or leaders are grappling with. does the state need to make societies more equal? does that come at a cost? there is much to admire about scandinavia. on ed kalgts, on health care, on energy, but that doesn't mean we need to become scandinavian. we are more individualual lis tick, free-wheeling, ready to take risks. americans don't need to stop being american, but why not look at how these countries in scandinavia make investments in health care, early education, and all of these things create greater opportunity. that's what, after all, helping people succeed no matter where they come from or how poor they are. the truth is scandinavian countries are fulfilling a huge

part of the dream better than america these days. thankfully we're still an innovation powerhouse and we spent to spend more on research and development rather than cutting the budgets and perhaps we need to target some of our innovative thinking toward restoring the american dream of equal opportunity. that would be a truly american solution to an american problem. we'll be right back. up next, a perfect example of american innovation. have we found a cure to cancer? presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor

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that would be a truly american i'm candy crowley in washington with a chiks of the headlines. venezuelan president hugo chavez is suffering from a recurrence of cancer. during a televised session last night he said his vice president will replace him should his health worsen. an american doctor has been relea rerescued. dr. dilip joe joseph has been released. he's expected to be reunited with his family soon. morsi has canceled a decree giving him sweeping new powers but anything that was proposed

before it will stand. it triggered vie lend protests. critics call morsi's latest move a farce, a referendum on egypt's constitution is set for next week. president obama is taking his message of mid-class tax cuts back on the road. he's heading to m tomorrow the plant is a uaw shop and it's expected to pull him into the debate over the union's and to organize workers. those are your top stories. "reliable sources" is up at the top of the hour but right now back to "fareed zakaria gps." one out of two men will develop cancer in their lifetime. women are a little luckier. one out of three will get it. regards of your sex, those are terrifying numbers. but all of that could change because cures are inside.

this is the president of the world's largest cancer center, m.d. anderson in houston, texas. you believe we are at a point where we could actually cure cancer. >> i think we're at a major turning point in the history of cancer medicine where we have a very deep understanding of how it comes about and if it is established, how to deal with it. want and we have game-changing technological skranss that allow us to do much better care, cancer care of patients. >> what is the game-changing technology? what's handed -- you say this has happened really in the last five years. >> well, there have been major events. what's unusual about this event in science history is it's occurred in a narrow window and across a very broad front. it's not one technology. it's the fact that we can sequence genomes, your entire

genome profile in a few hours with a few hundred dollars which took billions of dollars and a decade. we have the ability to analyze those data through very statistical computations structures and artificial intelligence. >> so if i look at it. you show me a machine that now sequences dnas, the size of a large refrigerator. that is now more powerful than -- much more powerful than a machine five years ago? >> well, that machine in nine days, a 24/7 run, one machine could exceed the data generation of all of the machines in the u.s. in the year 2007. >> you also talk about how computing has become not only faster but much more sophisticat sophisticated. >> the most exciting is artificial intelligence. we're a third artificial intelligence where computers can

think. they can think in a text real way where computers can help us make decisions based on vast amounts of information, game-changing. >> now i think we all understand -- at least i think we understand as laymen, lay people, cancer is not one thing. so you've actually identify the ten most important cancers that you believe can be overcome in the way you just described, through early detection, aggressive treatment, so that they will not be life-threatening. give me an example of a cancer you believe can be essentially cured. >> i'll give you one project and one cancer. the 800-pound gorilla is lung cancer. we have 170,000 deaths in this country, the united states, each and every year. we have the ability to detect those cancers earlier now through noninvasive imaging. so if we screen all heavy smokers, we can -- we know that we can reduce mortality by 20%

by just catching the cancer earlier. that is 30,000 lives per year. it's a significant number. so in order to have that occur and occur in a practical way, one needs to identify amongst the 94 million former and current smokers who should we screen. we can't screen everyone. it's not economically feasible. but if we had a risk mod toll say these are the few million that are knocking at cancer's door, then those individuals can be enlisted into imaging. >> and we can do that now. >> we can do that now. in imaging, we have advances now where we want to develop a test for at-risk assessment. in addition iming also has another problem in that there's a 96% false/positive rate. so people understand a fols positive is when a test shows you test positive for lung cancer but actually you don't have it and as a result you go three perhaps unnecessary surgery and unnecessary tests.

>> exactly. so we need another test beyond imaging. so it's the fact you have this goal. the goal was we wanted to develop a strategy for early detection of lung cancer. if we achieve that, we get dramatic results. but it took a multi-disciplinary effort to think in a goal-oriented way, just like the moon shots. >> the holy grail for cancer would be to trigger the body's own immune system to fight off the cancer so that you somehow stimulate the anti-bodies in a way that that happens. are we close to that? >> well, i'd say that that ship has already arrived. so i would say the most exciting advance to my feeling has been to harness the immune system to fight cancer. cancer is essentially foreign because it's different from what we were born with. so it has different genetics. it should be recognized as different but it's stealth from the immune system and the investigator here, at md

anderson discovered how that occurs. the discovery puts the brakes on the immune system. we developed a drug for that system. a monkey wrench, and unleashed the power of the immune system, and 24% of the patients with advanced melanoma, a very lethal skin cancer, appear to be cured now. >> we're going to be right now with the director of md anderson, the largest cancer research center in the world. when we come back, we're going to figure out what will it take to actually win the war on cancer and some parts of our health care system in general. we'll come back. are you getting federal investment on the basic recertain. at this point? >> the answer is absolutely not. my doctor told me calcium

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and we are back with the director of md anderson, the largest cancer representative facility in the world. we're going to talk about what you need to win this war on cancer, but also get some other thoughts as well.

first talk about what you need. in the last segment, you explained how close we are to being able to actually achieve this moonshine as you call it, curing cancer for all effective purposes or at least curing the eight most lethal cancers. what do you need to make it happen? >> well, to this point our major limitations are conceptual. we didn't understand cancer enough. there are also technological things as well to fine tooin tumors and so on. believe one of our major barriers to this point are organizational. academia. it's a calderon cauldron of activity. they've been very good at executing. believe what we need to do is really have the two be better integrated. so in our cancer moonshots

program what we've developed are professional platforms that if a discovery is made, we can systematically convert that discovery into an end point, a new law, new educational material orks new drug or new device or diagnostic. >> you're looking at the possibility of actually curing cancer. you have the norjs computing power, artificial technology. what you need is money, federal investment. are you getting federal investment for basic research that you think of at this point? >> the answer is absolutely not. we have the humanitarian crisis, the ability to act on this, but we're extremely resourced -- resource-deplete as a community. so there's been a 19% decline in nih funding over the last ten years in real dollars. this is significant, precisely at a time when we have an increased incident of major des

including cancer, alzheimer's, diabetes. you're on a sinking ship. you're trying to slow the sinking ship and managing the system. >> explain the scale of the problem because of demographics. how many people are getting old and what does that mean in terms of these diseases you're talking about? >> well, for the first time in history for who we are as a species, over the last 70 years, the life expectancy worldwide has increased from about 42 to 74. by the year 2025, we will have 1.2 billion people over the age of 60. the significance of 60 is that after 60 the incidence of the great four diseases that today cost the united states alone a trillion dollars in direct and indirect expenditures will dramatically increase, double every five years. >> so once you're 60, your --

>> you start to escalate. so by the time you're 85, you have 45% chance of having alzheimer's. if you're man, a one in two lifetime chance of having cancer, so we're on a collision course. >> and only science can solve this because what science does is it makes it so that you don't actually have to treat the disease because you've detected it early or you've prevented it. >> right. i think about vaccination, how we've eradicated it on that basis and the cost of vaccination versus the advance care that's needed to deal with the sequelae, the side effects of that particular condition. so in cancer alone, 50% of cancers are preventable just from prevention strategies of dealing with proper nutrition, not smoking, protection, and a variety of other strategies. >> can private money, can private sector fund these kinds of advances that you're describing? >> there's no question. i mean on several levels.

individuals giving gifts and contributions, very important. but also having a synergistic interactions with a commercial entity. for example, if we develop a drug that actually has an impact on a disease, we can license that drug to a pharmaceutical company and we get a return on the investment that we plow back into our mission. >> so in this atmosphere of budget cutting and, you know, concerns about our debt, what would be your message to president obama? >> it is very important for us to focus on the ultimate solution, that we've got to make the critical investments in this nation, and also congress nights to understand that it's critically important that we go into an era of solutions and not simply stop gap measures. it's very important that we manage our health care system, no question, but efficiencies are not going to get us there. we need science to drive, knowledge to apoint of

delivering on strategies for public health, early detection of desee, and if disease does occur, to render them eliminated as a result of effective and less expensive drugs. >> ron, pleasure to have you on. >> my pleasure. >> and we will be right back. two years ago, the people of bp made a commitment to the gulf. bp has paid over twenty-three billion dollars to help those affected and to cover cleanup costs. today, the beaches and gulf are open, and many areas are reporting their best tourism seasons in years. and bp's also committed to america. we support nearly 250,000 jobs and invest more here than anywhere else. we're working to fuel america for generations to come. our commitment has never been stronger.

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oscar knee my, the famous architecture of brazil has died this week. brazil, of course, hasn't always been brazil's capital. it used to be rio. that brings me to my question of the week. in what decade did the capital

move to brazil. a, 1940s, the 1950s, c, the 1960s, or d, the 1970s. stay tuned and we'll tell you the answer. go to cnn.com sl/fareed and tak the gps challenge. you can download our show on itunes. this week's book of the week is david russell's "red ink." plead rise this short book so you know the actually facts about taxes. we wessel's book is about the budget and it's not boring. now for a last look. you may have read john keats ode

to a war. you may have seen this. an owed to a well weather jacket. parka of kim jong-il was a tribute the old gray coat that the dear leader sport fefed forr a decade. how the par can tells a tearful emotion-charmed story. >> the parka, a symbol of kim jong-il's patriotism will be remembered forever by the corinne people. she says the coat was thread-bar rehn and a history to devotion. talks about the devotion, efforts, and exploits of the peerless patriot kim jong illinois. the answer to our challenge question